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S&P Global Ratings upgrades Glenmark Pharma to BB on expected maintenance of lower leverage

The stable outlook reflects our view that Glenmark will maintain its financial policy such that its FFO-to-debt ratio will remain comfortably above 30%.

November 22, 2021 3:59 IST | India Infoline News Service
glenmark pharma
Glenmark Pharmaceuticals Limited informed the exchanges Thursday that S&P Global Ratings has upgraded credit ratings of the company to BB from BB- on expected maintenance of lower leverage. Outlook is Stable.

The company stock trade on Monday ended at Rs469.05 per piece down by Rs13.85 or 2.87% from its previous closing of Rs482.90 per piece on the BSE.

Rating Action Overview
  • Glenmark Pharmaceuticals Ltd.'s debt is likely to decline by about 25% in fiscal 2022 (year ending March 31, 2022) given management's commitment to maintaining lower leverage following recent equity raising at its subsidiary.
  • We expect the India-based pharmaceutical player to maintain conservative debt levels given limited upcoming capital investments and healthy free operating cash flow. This should boost the company’s ratio of funds from operations (FFO) to debt to 35% - 40% in fiscal 2022.
  • Therefore, we raised our long-term issuer credit rating on Glenmark to 'BB' from 'BB-'.  The stable outlook reflects our view that Glenmark will maintain its financial policy such that its FFO-to-debt ratio will remain comfortably above 30%.
“Glenmark will likely prioritize debt reduction over the next 12-18 months. We expect the company to repay up to Rs16 billion in debt during fiscal 2022 in line with management's commitment to deleverage. Glenmark's subsidiary, Glenmark Lifesciences Ltd., concluded its public equity offering in July 2021 and raised about Rs15 billion.

Subsequently, Glenmark repaid about Rs11 billion of its outstanding borrowings. We believe Glenmark will direct its surplus operating cash flow over the next few quarters toward further debt reduction to meet its stated target. Thereafter, we expect the company’s adjusted gross debt to remain stable at Rs35 billion - Rs40 billion over fiscals 2022 and 2023, compared with Rs51 billion at the end of fiscal 2021,” company shared S&P Global Ratings rationale in a filing.

Glenmark's healthy revenue growth and cost optimization measures, including reduced investments (measured as a percentage of revenues) in research and development (R&D), will bolster its operating cash flow. We estimate the company will generate Rs12 billion-Rs14 billion in operating cash flow annually over fiscals 2022 and 2023, it added.

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